One of my jobs was to fill the mop buckets each morning with this industrial grade disinfectant. These buckets were stored in an area near the surgical scrub sinks. The surgeons would have to scrub for ten minutes before they gowned and gloved. Needless to say, this was not a mentally taxing job so they would chatter—loud enough to be clearly heard. If it was a major case, the chatter was serious while they discussed the day's plan of action. But most of the time, the conversation was about cars and sports and current events.
Some of those doctors were world-class. The UM hospital can legitimately claim to be one of the places where open heart surgery was invented in the 1950s. One would expect that there would be some elevated conversations around those scrub sinks. One would be wrong. Whenever the conversation strayed outside the realm of surgery, the levels of competence just plummeted. Unfortunately, these docs also had world-class arrogance so they never seemed to notice that excellence in cardiac surgery did not translate into excellence in understanding opera, fast cars, or the disaster in SE Asia. I could scare my friends by reporting the insanities I heard around scrub sinks.
As the evidence mounted over time, I became convinced that medical doctors should probably be prohibited from elective office by constitutional amendment. The fact that doctors make some terrible politicians includes examples Bill Frist, Tom Coburn, and Rand Paul. Yet in spite of all that, I find the Ron Paul phenomenon quite fascinating even though he is an MD with all the baggage that entails. He finished second in the Minnesota Republican caucuses and I have NO problem understanding why. This state has a lot of people making their way (or at least trying) as Producers. Lots of medical and other high-tech equipment comes from our long dark winters, so along with the industries associated with food production, we still do have some good Producer jobs. And for an assortment of pretty good reasons including his love of science, his willingness to learn a difficult profession, and his tendency to blurt out his version of the facts without resorting to political niceties, Producers like Ron Paul.
As regular readers have figured out, I am utterly fascinated by the culture of Producers. Having a front-row seat to this amazing phenomenon has been quite helpful in understanding the complexity of their worlds. For example, I thoroughly enjoy Producers that are so dedicated to their worldviews, they even have Producer hobbies. Tony sells books to them and I have joined him at gatherings of people who restore 19th century steam engines—see video above. I'm telling you, these are MY people. But bless their hearts, they can be dumb as stumps when it comes to politics and economics.
And nothing so clearly demonstrates a politically naive Producer than support for a return to the Gold Standard—which Dr. Ron Paul unfortunately does. Having grown up in the heart of "damn the gold standard" territory, I can assure you that from the foundation of this nation, Producers have organized to abolish the rule of the goldsmiths. Here in the Midwest, there were two events that triggered at least a century of anti-gold animus—the Panic of 1873 and England's botched return to the Gold Standard in 1925 which my grandfather was absolutely convinced was the real cause of the Great Depression, while John Kenneth Galbraith claimed "The 1925 return to the gold standard was perhaps the most decisively damaging action involving money in modern time." Both were caused when the banksters decided to soak up emergency money supplies created to fight wars with a mandatory exchange for gold. Both actions caused horrendous hardships for the Producing Classes. The Panic of 1873 triggered a political debate on monetary policy that was still alive and well in the Midwest when I was a child in the 1950s and 60s.
Churchill and the Gold Standard
Churchill was appointed Chancellor of the Exchequer in 1924 under Stanley Baldwin and oversaw Britain's disastrous return to the Gold Standard, which resulted in deflation, unemployment, and the miners' strike that led to the General Strike of 1926. His decision, announced in the 1924 Budget, came after long consultation with various economists including John Maynard Keynes, the Permanent Secretary to the Treasury, Sir Otto Niemeyer and the board of the Bank of England.
This decision prompted Keynes to write The Economic Consequences of Mr. Churchill, arguing that the return to the gold standard at the pre-war parity in 1925 (£1=$4.86) would lead to a worlddepression. However, the decision was generally popular and seen as 'sound economics' although it was opposed by Lord Beaverbrook and the Federation of British Industries.
Churchill later regarded this as the greatest mistake of his life. However in discussions at the time with former Chancellor McKenna, Churchill acknowledged that the return to the gold standard and the resulting 'dear money' policy was economically bad. In those discussions he maintained the policy as fundamentally political—a return to the pre-war conditions in which he believed. In his speech on the Bill he said "I will tell you what it [the return to the Gold Standard] will shackle us to. It will shackle us to reality."
The return to the pre-war exchange rate and to the Gold Standard depressed industries. The most affected was the coal industry. Already suffering from declining output as shipping switched to oil, as basic British industries like cotton came under more competition in export markets, the return to the pre-war exchange was estimated to add up to 10% in costs to the industry. In July 1925, a Commission of Inquiry reported generally favouring the miners, rather than the mine owners' position. Baldwin, with Churchill's support proposed a subsidy to the industry while a Royal Commission prepared a further report.
That Commission solved nothing and the miners' dispute led to the General Strike of 1926, Churchill was reported to have suggested that machine guns be used on the striking miners. Churchill edited the Government's newspaper, the British Gazette, and, during the dispute, he argued that "either the country will break the General Strike, or the General Strike will break the country" and claimed that the fascism of Benito Mussolini had "rendered a service to the whole world," showing, as it had, "a way to combat subversive forces"—that is, he considered the regime to be a bulwark against the perceived threat of Communist revolution. At one point, Churchill went as far as to call Mussolini the "Roman genius... the greatest lawgiver among men." moreHere we see the Oracle of Omaha explain why he thinks investing in gold is just plain silly (or worse.) And no, I do NOT intend to make a habit out of quoting stock pickers but when even one of those can demolish the case for gold in economic affairs, it's worth a read.
Why stocks beat gold and bonds
In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.
By Warren Buffett February 9, 2012
The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else -- who also knows that the assets will be forever unproductive -- will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the "proof " delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: "What the wise man does in the beginning, the fool does in the end."
Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube pile A.
Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B. moreThe world's supply of gold is both finite and very small. (You can see just how small using this very clever graphic that demonstrates in many ways the real size of the global gold supply.) It is obviously not nearly big enough to form a basis for the world's monetary systems. Of course, for the gold bugs, this is a feature—not a bug. For the rest of us, this feature is the prime reason why the idea of returning to the gold standard may be the worst idea in history. And we know one thing because the historical evidence is overwhelming, a global gold-standard economy would be the exact opposite of prosperous.
Finally, to get the flavor of how passionate the political arguments were against the gold system back in the day when there were actually members of the Greenback Party, we have excerpts of William Jennings Bryan's famous "Cross of Gold speech. Please, my Producer friends, read some of this. Better, follow the link and read (or listen to) the whole speech! See how much of it could be said today without even minor editing. Then ask yourself, do I REALLY think the solution to our economic problems will come from the most anti-Producer idea in all of history. The gold standard has historically proven to be economically and ethically beneath the practice of human slavery. Dr. Ron Paul may get a LOT right—especially his critiques of USA foreign policy. But when it comes to economics and gold, he has become the sort of scrub-sink nut job that I remember from my youth with real horror.
#OWS And Our Cross of Gold
by tmservo433Follow WED DEC 28, 2011
I spent today, going through a lot of the notes, emails, and things that I wrote a long time ago in reference to friends and family as a young aspiring scholar. I admit, I did not chose to end my career in that area, but I still remain drawn to it. I sat tonight, and listened again to Bryan's "Cross of Gold" speech. You can hear it here:
But as I listened to it this time, I am reminded of the message that so many are trying to send now; who wait for a moment like this to come today.
I would be presumptuous, indeed, to present myself against the distinguished gentlemen to whom you have listened if this were but a measuring of ability; but this is not a contest among persons. The humblest citizen in all the land when clad in the armor of a righteous cause is stronger than all the whole hosts of error that they can bring. I come to speak to you in defense of a cause as holy as the cause of liberty—the cause of humanity. When this debate is concluded, a motion will be made to lay upon the table the resolution offered in commendation of the administration and also the resolution in condemnation of the administration. I shall object to bringing this question down to a level of persons. The individual is but an atom; he is born, he acts, he dies; but principles are eternal; and this has been a contest of principle.
In almost every way, knowing or unknowing, OWS and movements like it as well as most of the content here on Kos, is a contest of principles - a question of progress, of goals.
We no longer debate the gold standard. But so much of the root problems still remain; and much of Bryan's words ring as true now as they did more then a hundred years ago.
But we stand here representing people who are the equals before the law of the largest cities in the state of Massachusetts. When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our business interests by your action. We say to you that you have made too limited in its application the definition of a businessman. The man who is employed for wages is as much a businessman as his employer.
What Bryan saw at the heart of the party was an imbalance between the worker and his employer - an imbalance which was then far less severe then it is today. But he pointed out the obvious: the workers were businessmen in the same way as their employers; they were in the same endeavor to advance both of their interests. The success of one directly meant the success of the other; and the success of a business as a whole was meant to benefit all.
The attorney in a country town is as much a businessman as the corporation counsel in a great metropolis. The merchant at the crossroads store is as much a businessman as the merchant of New York. The farmer who goes forth in the morning and toils all day, begins in the spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a businessman as the man who goes upon the Board of Trade and bets upon the price of grain. The miners who go 1,000 feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured in the channels of trade are as much businessmen as the few financial magnates who in a backroom corner the money of the world.
Whether anyone wishes to acknowledge it or not, our basic economic relies heavily on a symbiotic relationship between all parties; when that relationship becomes parasitic, where there is not a mutual benefit, then as Bryan pointed out there comes a time to force a change.
It is for these that we speak. We do not come as aggressors. Our war is not a war of conquest. We are fighting in the defense of our homes, our families, and posterity. We have petitioned, and our petitions have been scorned. We have entreated, and our entreaties have been disregarded. We have begged, and they have mocked when our calamity came.
We beg no longer; we entreat no more; we petition no more. We defy them!
Does this not seem familiar, now and then?
The income tax is a just law. It simply intends to put the burdens of government justly upon the backs of the people. I am in favor of an income tax. When I find a man who is not willing to pay his share of the burden of the government which protects him, I find a man who is unworthy to enjoy the blessings of a government like ours.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it. more